On the Allocative Efficiency of Competitive Prices in Economies with Incomplete Markets

38 Pages Posted: 7 May 2019

Date Written: September 30, 2003

Abstract

A new measure of constrained efficiency for application in economies with incomplete markets is presented. This measure — termed Allais-Malinvaud efficiency — can be viewed as adjusting for market incompleteness not fully captured in previous work. It is shown that equilibrium allocations in Radner-GEI economies are always Allais-Malinvaud efficient. In particular, a re-distribution of assets in equilibrium cannot induce a relative price change that leads to an Allais-Malinvaud improvement. Moreover, this result extends to Radner-GEI economies in which consumer liability is limited by bankruptcy.

Keywords: Allocative Efficieny, Incomplete Markets, Allais-Malinvaud Efficiency

JEL Classification: D52, D61

Suggested Citation

Sabarwal, Tarun, On the Allocative Efficiency of Competitive Prices in Economies with Incomplete Markets (September 30, 2003). Available at SSRN: https://ssrn.com/abstract=3367872 or http://dx.doi.org/10.2139/ssrn.3367872

Tarun Sabarwal (Contact Author)

University of Kansas ( email )

1415
Lawrence, KS 66045
United States

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